Open Text Corporation (NASDAQ:OTEX) Q1 2024 Earnings Call Transcript

Open Text Corporation (NASDAQ:OTEX) Q1 2024 Earnings Call Transcript November 2, 2023

Open Text Corporation beats earnings expectations. Reported EPS is $1.01, expectations were $0.91.

Operator: Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation First Quarter Fiscal 2024 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions]. I would like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Please, go ahead.

Harry Blount: Thank you, operator. Good afternoon, everyone, and welcome to OpenText’s first quarter fiscal 2024 earnings call. With me on the call today are OpenText’s Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; our Executive Vice President and Chief Financial Officer, Madhu Ranganathan and also joining us is Paul Duggan, Executive Vice President and Chief Customer Officer. Today’s call is being webcast live and recorded with a replay available shortly thereafter on the OpenText Investor Relations website. Earlier today, we posted our press release and investor presentation online. These materials will supplement our prepared remarks and can be accessed on the OpenText Investor Relations website, investors.opentext.com.

I’m pleased to inform you that OpenText management will be participating at the following upcoming conferences: RBC’s Capital Markets Global Technology Internet Media & Telecom Conference on November 14th in New York. Needham’s Virtual SaaS Conference on November 16th, TD Securities Technology Conference on November 21st in Toronto, Bank of America Securities Leveraged Finance Conference on November 28th in Boca Raton, Wells Fargo Technology Media & Telecom Summit on November 29th in Rancho Palos Verdes, UBS Global Technology Conference on November 30th in Scottsdale, Scotiabank’s Global Tech Conference on December 5th in San Francisco, Nasdaq’s Investor Conference on December 5th in London, and Barclays Global Technology Media & Telecom Conference on December 7th in San Francisco.

And now on to our Safe Harbor, please note that during the course of this conference call, we may make statements relating to the future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward-looking statements made today. Certain material factors and assumptions were applied in drawing any such statement. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, as well as the risk factors that may project future performance results of OpenText are contained in OpenText’s recent Forms 10-K and 10-Q, as well as in our press release that was distributed earlier this afternoon, which may be found on our website.

We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call may include discussions of certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website. And with that, it’s my pleasure to hand the call over to Mark.

Mark Barrenechea: Harry, thank you. Thank you for joining us today. It’s an exciting start to our new fiscal year 2024. We had record Q1 revenues of $1.43 billion, double-digit cloud revenue growth and adjusted EBITDA of 34.7%. It was another quarter of cloud organic growth, ARR organic growth and strong renewal rates in the mid-90s. Customers showed tremendous trust and confidence in OpenText during the quarter. Bombardier chose OpenText for their legal tech AI platform. CNP chose OpenText for large contract AI analysis. And Infosys chose OpenText for developer testing, automation, and generation. Great information management is a prerequisite for great AI, and we intend to compete in and win both information management, automation, and AI.

The OpenText business is best analyzed and measured on annual performance. We manage the business to longer cycles than 90 days, thus our quarters do vary. Based on our strong Q1, our strong product cycle and forward visibility, we have confidence in our F24 constant currency targets, $5.85 billion to $5.95 billion in revenues, 36% to 38% adjusted EBITDA, $800 million to $900 million in free cash flows, including total revenue organic growth, 15% plus enterprise cloud bookings growth and returning micro focus to organic growth. We are shifting from growth primarily driven by M&A to growth driven by product innovation and go-to-market execution. You can see our new total growth model with our F26 aspirations on Slide 21 of our investor relations deck.

It includes 15% plus enterprise cloud bookings growth, 7% to 9% cloud revenue growth, 2% to 4% ARR growth, plus any future M&A and margin expansion, plus dividends and buybacks. And when all combined, yields return to shareholders. We are focused on the fundamentals that drive shareholder value. Slide 13 of our investor deck highlights our new shareholder value approach and how we intend to create value through six fundamentals. First, expand our competitive differentiation and information management, expand customer consumption, unlock new value areas such as SaaS and AI, expand our go-to-market, realize higher profit and cash flows from those higher revenues and continue to return capital to shareholders via our dividend programs and future share buybacks.

Let me walk you through each one of the value drivers. Competitive advantage is everything. We offer the most comprehensive information management platform in the market, affording customers many paths to value, and paving the way for new value as the world embraces AI. And to accelerate these outcomes, we expect to invest up to 16% of revenues in R&D and we expect these investments to support our F26 growth aspirations of 7% to 9% organic cloud growth. Second, expanding our customer consumption is a threefold strategy. First, by being the market leader in each of our business clouds, and driving more consumption within each content, experience, business networks, applications, automation, IT operations, and security. Second, by embedding security and content across all of our business clouds.

And third, by providing customers choice and continuing to provide them choice. Off cloud, private cloud, public cloud, API cloud. We provide the flexibility to prepare to pair the right workload with the right consumption approach. So our customers can focus on the right model for their business. Third value driver. We have new value areas to unlock, very focused in SaaS and AI. While we’re executing well overall and we have many programs to enhance value, we are very focused on unlocking new value from SaaS and AI. Titanium was SaaS driven. Titanium X is both AI and micro focus cloud driven. Expect us to spend disproportional time in these areas. And for Q2, we expect to see 20% year-over-year growth in enterprise cloud bookings, another positive sign of unlocking new value.

We will expand our go-to-market. We have one of the largest enterprise sales forces in software that we enter F24 with clear market lanes and resource across strategic accounts, enterprise accounts, corporate and business accounts, as well as the home. We are making it easier for customers to connect with our products to consume more. Over 500 partners attended OpenText World as we relaunched our partner network, focused on cloud and AI. And you can already see our progress within strategic accounts such as Microsoft and SMB. SAP, an enterprise business applications, Google with cloud infrastructure and AI, and AWS with mainframe modernization. A remarkable level of interest in our long-term strategy. We also intend to realize higher profits and higher free cash flows from higher revenues.

With our expanded mission and information management and greater operational scale, this provides us greater opportunity to automate and to use AI to drive even greater operational synergies. Higher revenues and higher EBITDA translates to increased cash flows, which is reflected in our F’26 aspirations of adjusted EBITDA of 38% to 40% a $1.5 billion plus in free cash flows. And we anticipate the operating leverage in future years to only get stronger as well. And finally, capital allocation as a strategic value driver. Our capital allocation principle is to upturn approximately 20% of trailing 12 month free cash flows via dividends. Since fiscal ’13, we have returned $2.2 billion via dividends and share buybacks. And we expect that as our free cash flows grows, so do our dividends.

And as our net leverage decreases below 3x, we would expect to return to our share buyback program. This is our new growth model and our new value creation approach as we shift from growth primarily driven by M&A to growth driven by product innovation and go-to-market execution. Let me close on a few points. OpenText is in a great position to help our customers build the next generation of work, the next generation of experience, the next generation of service management, business fabrics, and supply chains. And to do this with highest levels of trust and security. And excited by our growth agenda helping customers modernize their businesses and their information platform, helping them consolidate customer data into our information cloud, providing cyber tools to create trust and security, consuming more SaaS applications.

Helping developers be more productive and at the highest levels of quality and building AI platforms for humans. The promise of AI starts with great information management. Our Aviator AI software is built into our business clouds. Aviator platform embedded into our automation with pluggable language models. Aviator Thrust building smarter applications, Aviator Search, interacting with information in whole new ways, Aviator IoT embracing the next generation of device generated information in our individual Aviator Business Clouds. We are already working with customers to create exciting new AI personas via Aviator, such as the next generation tech supported system, a mortgage advisor, a claims adjuster, an HR business partner. As well, we’re working with customers to simply get more efficient via AI.

You can start to see us unlocking AI value with our expected Q2, 20% year-over-year growth in enterprise cloud bookings. Far shift to a new total growth model, driven by innovation with emphasis on high quality growth will enable us to deliver strong metrics for profitability and cash flows at scale. Our six fundamentals of new shareholder value will uniquely position us as a choice investment in the technology sector. My deepest appreciation to our 24,000 colleagues at OpenText who live our mission every day to make our customers widely successful. Our hearts pray for the hostages and innocent everywhere. And we joined the global community in the hope of a peaceful and prosperous future for the Middle East region. May the one that brings peace bring peace for all.

Let me turn the call over to Paul Duggan, our Chief Customer Officer, who will speak to our renewal business, which grew organically in Q1. And Paul will hand the call over to Madhu, our CFO, who’ll speak to our financials and outlook. Over to Paul.

Paul Duggan: Great. Thank you, Mark. It’s a privilege to be with all of you today to talk about our renewals business and a work for doing to unlock value for our customers and shareholders. Before I do, let me tell you about my team, the customer success organization were responsible for renewals of cloud and off cloud subscriptions, professional services and cloud delivery, and technical support. We brought these functions together following the Micro Focus acquisition, and took on an enhanced mission called OpenText, love, land together, operate, value, expand. OpenText love means focusing on customer outcomes. It’s all about turning promises made into promises delivered. When it comes to renewals, we believe if you deliver on those promises, customers succeed.

And when they succeed, they stay with you and those relationships will grow over time. Today, I’ll speak to three areas, the strength of our renewals, an update on Micro Focus, and a few of the goals ahead for our team. First, OpenText has a strong record of maintaining exceptional and predictable renewal performance. Despite historic and disruptive world events, economic uncertainties and unprecedented strategies of the last decade, our renewal rates are unwavering. Q1 was no exception finishing at 94% for cloud and off cloud, excluding Micro Focus. Of course, renewal rates directly correlate to the value of products and services to our customers, but it’s also a measure of operational excellence. From our renewal systems, processes, and controls to pricing and programs, to the automation simplifying the transactional elements.

Collectively, these also create a lifting force on renewal rates and help us protect and grow ARR over time. It’s not just renewal rates either. All of our primary indicators are trending positively on time renewals, past due contracts, cancellations, pricing at the point of sale, and our annual price adjustment at renewal. These trends are the hallmarks of customer confidence and a tightly run world class renewal function. Second, as we’ve shared before, raising the renewal rate on Micro Focus is a critical value unlocker. We started on day one of the acquisition, immediately bringing the business onto our internal standards. We also implemented a risk identification and mitigation playbook, growth programs like an extended support offering and deep engagement with our sales and engineering leadership to shape overall consumption and expansion strategies.

By the end of Q2, all have touched roughly 75% of the Micro Focus Cloud and Off-Cloud subscriptions, we expect to touch 90% by Feb 1. As a result, we’ll increasingly see the positive impacts of running the business in all the ways I described. And I’ll give you two proof points on that impact. One, back in February, we took on a business operating in the low 80s on renewal rate. Q1 ended in the mid-80s, and it gives us now two consecutive quarters of improvement. We remain confident we’ll end in the high 80s this year and expect to operate in the 90s in fiscal ’25. Two, we did it for Documentum, taking renewals from the low 80s to the mid 90s where we are today. And now we are doing it for Micro Focus. And finally, looking to the future, it’s all about growth.

We already have a successful cloud renewal expansion motion in business networks and SMB. We’re adding new offerings like a premium support upsell on our OpenText installed base, taking a very successful offering within the Micro Focus business, understanding the profile of customers that consume it, and extending that to similar OpenText customers. We also announced a new customer renewal portal last month, more than 90% of our Cloud Renewal business is auto renewed. And with this new portal, we’ll bring an automated and self-service option to our off-cloud customers as well. As we do that, we plan to shift more renewal professionals to customer management versus renewal management and drive expansion across the entire customer base. Our overarching goal is to position renewals and the entire customer success organization to play a more prominent role in consumption, AI adoption, and public cloud expansion.

Let me close by saying thank you to our customers. Success to the team support and a fantastic results we saw in Q1 ultimately represent your trust in OpenText. That trust is earned, not given, and we’re committed delivering on the promises we make to you every day. And with that I’ll hand the call over to Madhu.

Madhu Ranganathan: Thank you, Mark, and thank you, Paul. We appreciate all of you joining us today. So let me summarize the key points for today. In regarding Micro Focus, we expect to return Micro Focus to organic growth this fiscal year driven by successful integration. And in particular today, we all receive an excellent overview on renewals from Paul. In addition, we’re delighted to share that we expect Micro Focus to be on our target operating model of 36% to 38% adjusted EBITDA this fiscal year as well. In Q1, OpenText executed extremely well in a volatile world with record Q1 revenues and year-over-year growth. Turning to our Outlook. Our outlook fully reflects the performance we expect bringing together two businesses with different seasonality trends and close cycles.

With Q1 actuals and Q2 quarterly factors, we remain on target for our internal plan. We expect a stronger second half and a seasonally strong Q4 at the end of fiscal year, including a return to organic growth for Micro Focus. These are important factors for our quarterization and we encourage the analysts to better balance your quarterly models. We remain fully on track to meet our fiscal ’24 targets and fiscal ’26 aspirations. You are hearing today that we’re shifting from growth primarily driven by M&A to growth driven by product innovation and go-to-market execution. This is our new total growth model with our fiscal ’26 aspirations led by cloud and ARR. My final summary point will remain highly committed to shareholder value. And today, we’re sharing with you our new shareholder value approach through six fundamentals that Mark outlined earlier.

So moving to our Q1 results, please refer to the investor presentation as posted on our IR website. Starting on Page 24 of the presentation for the slide titled Q1 fiscal ’24 and trailing 12 month financial highlights, all references I will be making are in millions of USD and compared to the same period in the prior fiscal year and are on a reported basis unless stated otherwise. On a year-over-year basis, enterprise cloud bookings of $121 million, up 8% year-over-year. We had record Q1 cloud revenue of $451 million, up 11.5%, and 10.9% in constant currency. Q1 ARR revenue of $1.15 billion up 59.1% and 57.5% in constant currency, and this represents over 81% of total revenue. This is 11th consecutive quarter of organic growth in constant currency for both cloud and ARR.

It’s record Q1 total revenue of $1.43 billion up 67.3% and 65.4% in constant currency with micro focus contributing $563 million in the quarter. And moving to other financial metrics, GAAP net income was $80.9 million and this reflects increased operating expenses, amortization, special charges, and interest expenses related to the acquisition of Micro Focus driving GAAP EPS of $0.30. GAAP gross margin of 71.4%, up from 69.7% and this reflects increased relative revenue contribution from customer support and license. Non-GAAP gross margin of 77.3% up from 75.2%, also reflecting increased relative revenue contribution from license and customer support. Adjusted EBITDA of $495 million, an increase of 62.8% year-over-year and 58.2% in constant currency.

Our adjusted EBITDA margin was 34.7%. We expect Micro Focus on to our adjusted EBITDA model by the end of this fiscal year. Adjusted EPS of $1.01 continues to reflect this progress. Turning to DSO, our DSOs of 43 days down slightly by two days compared to Q4 given Q1 seasonal factors. Micro Focus continues to perform well and our overall working capital performance remains strong. As stated in our last call, we expected Q1 free cash flows to be neutral to slightly negative as a result of interest, special charges, and integration costs as with a seasonally lower working capital to start the fiscal year. We generated $47 million in operating cash flows and $10 million in positive free cash flows in the quarter. Starting from Q2, we expect free cash flows to grow on a year-over-year basis in each subsequent quarter.

We remain on track to realize our fiscal ’24 FCF targets of $800 million to $900 million and achieve our fiscal ’26 aspirations. Now turning to the balance sheet, please refer to Page 26 of investor presentation. We finished Q1 with $920 million in cash, and $8.9 million of total long-term debt. Our net leverage ratio was 3.6x for the quarter. In Q3, and in our last call, We mentioned the net leverage ratio would fluctuate slightly over the next few quarters, while we remain on the path to a net leverage ratio of less than 3x by the end of fiscal 2025 or sooner. We have completed approximately $560 million of debt repayment since the close of Micro Focus transaction. Our revolver is now fully paid, and we have begun to make discretionary principal payments on the term loan.

Turning to our dividend program on November 1st, our Board of Directors approved a quarterly cash dividend of $0.25 per common share. The record date for the next quarterly dividend is December 1, 2023, and the payment date is December 20, 2022. And let’s turn to our targets and aspirations. As Mark highlighted for Q2, we expect enterprise cloud bookings to grow 20% year-over-year. And let me comment on the SMB market. The SMB market has been the most impacted by the current macro environment. This trend has an impact on our cloud revenues, not on enterprise cloud bookings. During Q2, we expect to have $10 million to $15 million revenue headwind from SMB. Our enterprise cloud business remains strong and expected to grow revenues organically in Q2 and the rest of the fiscal year.

As the SMB market gains more strength, we are well positioned to capture share and accelerate cloud revenue growth. Starting with our Q2 fiscal ’24 quarterly factors of our investor presentation. On a year-over-year basis, we expect revenue of $1.45 billion to $1.50 billion, ARR of $1.1 billion to $1.13 billion. FX revenue tailwind of approximately $10 million to $15 million. Adjusted EBITDA year-over-year, the margin between 36% and 37% and reflects Micro Focus integration costs. FX adjusted EBITDA tailwind of approximately $5 million to $10 million. Our fiscal ’24 targets in constant currency are provided on page 30 of the Investor Relations presentation. Mark’s [indiscernible] fiscal ’24 target in his comments, and let me provide a full summary.

Total revenues of $5.85 billion to $5.95 billion, enterprise cloud bookings growth of 15% plus, cloud revenues up 6% to 8%. Customer support revenues up 40% to 42%, ARR up 24% to 26%, total revenue growth of 30% plus with organic growth in the range of 1% to 2%. Non-GAAP gross margin in the range of 77% to 79%, total operating expenses of 42% to 44% of revenues, adjusted EBITDA margin of 36% to 38%. Two changes to our fiscal ’24 targets. At current exchange rates, we expect FX to be neutral, but also reducing our net interest expense for the year to be $550 million to $570 million and this reflects a 75 basis point reduction in the interest on our acquisition term loan. Our free cash flows are on track to achieve $800 million to $900 million which is our fiscal ’24 target range.

Our fiscal ’26 aspirations remain unchanged. These are included in page 32 of our investor presentation materials. We are reaffirming fiscal 26 FCF aspirations of $1.5 billion plus. We expect to realize higher adjusted EBITDA margins and free cash flows from higher revenues and let me put these in numbers for you. And relative to fiscal ’23, our fiscal ’26 aspirations show revenues to be 40% higher, adjusted EBITDA to be 67% higher and free cash flow to be 129% higher. Our fiscal ’26 aspirations show a highly predictable and growing business at scale led by cloud and ARR. Acquisitions will remain additive to our future growth as we delever and capital flexibility returns. Lastly, please refer to our financial integration framework slide on page 31, we have updated to reflect timing on system integration and global entity simplification.

So in summary, our Micro Focus integration is ahead of plan, and we expect to achieve important milestones in fiscal 2024. It’s a return to organic growth, and renewal rate to the high 80s and Micro Focus business to be on the OpenText operating model of adjusted EBITDA of 36% to 38%. Also, as Mark mentioned, our shift to a new total growth model, driven by innovation, with emphasis on high quality growth will enable us to deliver strong metrics for profitability and cash flows at scale. Our six fundamentals of new shareholder value approach will uniquely position us as a choice investment in the technology sector. Our OpenText team members have proudly delivered a solid Q1 kicking off of fiscal 2024. On behalf of OpenText, I would like to thank our shareholders, our loyal customers and partners.

I will now request the operator to open the call for your questions. Operator?

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Q&A Session

Operator: Pardon me. We’re experiencing some technical difficulty. Please stand by. My apologies. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Richard Tse with National Bank Financial. Please go ahead.

Richard Tse: Hi, yes, thank you. Can I ask Paul a question here?

Paul Duggan: Richard, go right ahead.

Richard Tse: Okay. Paul, so from your vantage point, you’ll actually been in the role and been successful at, like, what do you think has been the biggest, I guess, most meaningful driver to increasing micro focuses renewal rate here?

Paul Duggan: Hi, Richard. Great. Thank you for the question. Look, I think it’s — it comes down to three things. First, we move fast to get micro focus on our OpenText practices for Renewals, that discussed in my prepared remarks. Second, that also meant moving quickly to integrate the teams doing the work, getting renewals, doing renewals, and sales doing sales. And we believe that when those lines are not clear, renewal rates tend to underperform. And I’d say, third, as I speak to customers, I think that they also see our product roadmap and the other thing is we’ve unveiled in terms of our AI path, and they recognize that information management is becoming really a gating factor to fully embracing those step function. So I think all of those plays significant role in the decision to renew. And we can already empirically see that in the Renewal rates, in the improvement we’ve made since February.

Richard Tse: Okay, great. Thanks. So, Mark, your recent OpenText world was a great event. Certainly, a ton of excitement around Aviator. What’s sort of been the fall through, since the events last month and maybe kind of give us a sense of the momentum from a product perspective?

Mark Barrenechea: Yes, thank you, Rich. And as I said in my notes, the — continue — the product cycle customer engagement clarity of our ability to provide a practical value. All fed into our comments today in the call of increasing our bookings outlook for the quarter of 20% year-over-year growth. So we’re definitely getting to the next phase of engagement, to specific use cases. Product delivery in October. It’s just November. It’s November 2nd or 3rd. So it’s somewhere early November. We have the next wave of product delivery in January. We’ve engaged with customers with fantastic feedback from OpenText World, including 500 partners who were — who are with us in Vegas. And we’re getting — we’re in engagements now, and we’re going to win our first business. And, you’re going to see it reflected first in bookings and thus our 20% year-over-year growth expectations for the quarter.

Richard Tse: Okay. And then just a last one for me. Certainly appreciate the shift here to an organic growth focus, but I imagine you still have a fairly robust M&A team evaluating transactions. And so I’m just kind of curious, given the backdrop today. What’s your sense of the acquisition landscape, perhaps from an evaluation standpoint? And if you came across like a great opportunity, would you be in a position you think to move on something within the next 12 to 18 months?

Mark Barrenechea: Yes, thanks, Richard. I have the organization focused on a singular, powerful concept information management. It’s a $200 billion market. We are transitioning from M&A driven growth to organic growth. And that starts with a rich product pipeline unlocking value in the cloud, new value areas of SaaS and AI. And that is a new — that is an enhanced motion for us, with expectations of 20% year-over-year growth in our enterprise bookings. So that’s what we’ll focus on a singular, powerful concept, and we’ll remain focused on a singular, powerful concept. For sure. If we find an opportunity like we did recently, we’re climatic, that can enhance a specific aspect of our product, in the context of our strategy, we won’t be bashful at all. But we’re focused on the singular, powerful concept in our expanded mission and information management and being driven primarily by organic growth.

Richard Tse: Okay. Thanks for taking my questions.

Mark Barrenechea: Thank you. Appreciate it.

Operator: The next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Thanos Moschopoulos: Hi, good afternoon. Also a question for Paul. So just to be clear, what remains on maximizing the renewals of Micro Focus is a primarily question of going through, the annual renewal cycle with all the customers, or are there still some key steps that seem to be done internally to really drive that organization to its potential?

Paul Duggan: Yes. Great question. It’s a number of things. So, the — you nailed the first one, right? We actually got to get to each of the renewals. And like I had said in my remarks, it’ll be mostly there by February. And look, I think the step functions for us for there are really, kind of going to be value driven, the product roadmap, the conversations we’re having around that. I think those are the things that really go into decision points on renewal. The things that we see today are really in large part decisions that were made 12 months ago. So you got to go rewind the clock back and look at the product roadmap at that time and look at what was out in front of the customers at that point. So there’s going to be some run out here, I think of, we’re going to get these initial improvements and benefits from all the systems and all the processes and those sorts of things.

And then the longer end of this is going to be all about the intrinsic value of our offering. And you start with Documentum, like I’ve mentioned, we started a very similar place, low 80s. It the document benefit is running ahead of our average renewal rate. So we’re in the mid 90s and we’ve been there for some time. So, it’s — there’s confidence in our playbook. We’ve done it before. There’s a scale with this, but it’s still it comes down to these fundamentals.

Thanos Moschopoulos: Great. And then, Mark, just in terms of integrating the go-to-market, it sounds like you’ve done the heavy lifting for integrating your internal teams. But as far as integrating the Micro Focus and OpenText channels, where does that stand? How much opportunity it remains on that front and when do you start to start capitalizing some of that?

Mark Barrenechea: Yes. Thank you, Thanos. Thanks for the question. Yes, certainly our direct sales forces are fully integrated and fully aligned as we kicked off the fiscal year. We have — in the investor deck, I think is Slide 18. Where we talked about that fact segmentation, really important. We really matured as we’ve scaled up to our current revenue letter levels are looking well beyond the near, in the full coverage out into the global 10,000. We now have very formal segmentation. And it’s the segment, it very well aligned to how Oracle thinks in the world, SAP, Microsoft, we’re now in that category, strategic accounts, enterprise accounts, corporate accounts, business accounts, and home accounts, very well defined stratification, very defined go-to-market.

We are one sales organization, pursuing that those market areas. Where we have more work to do is on the partner network that we launched in July. We partner networks by definition, their network. So they got a lot of tentacles that go out over many, many years. We announced what — where our landing zone, for all our partners, including Micro Focus partners of deal registration. We announced where they can engage on selling cloud. We began the AI discussion with them and where we want to be kicking off July 1 next year. Take systems, takes contracts, fixed execution, but we announced where we want to land come July 1. So there’s a little work to do there between here in November and June, July — June of next year. But on the direct enterprise side, we’re fully aligned we’re united.

We’re one organization. We have one organization on the new partner network, and we defined our landing zone of where we want to be July 1, announce different partners. We’re working on all the details behind it. So that’s the remaining work, Thanos.

Thanos Moschopoulos: Great. Thanks, Mark. I’ll pass the line.

Operator: The next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.